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A subcontractor hired on Monday by the Securities and Exchange Commission to work on its new, interactive regulatory filing system doesn’t have enough confidence in its own financial statements to file on time. What’s more, the firm is under formal investigation by the SEC because of the company’s poor internal controls over financial reporting.

BearingPoint, an international management and IT consulting company, was identified by SEC Chairman Christopher Cox on Monday, as being one of the subcontractors working on the technology project aimed at converting existing, and possibly future, regulatory filings from a static electronic format to an interactive XBRL format. XBRL, an Internet-language method of tagging financial data, has been championed by Cox, who has argued it would make the financial statements of public companies easier for investors to examine and compare.

The main contract, worth $48 million, was awarded to Keane Federal Systems, based in McLean, Va. According to Cox, Keane will partner with other technology companies, including BearingPoint, Microsoft, Rivet Software, EMC, and Akamai to update the EDGAR system. The EDGAR (electronic data gathering and retrieval) system currently houses 700,000 regulatory filings.

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BearingPoint is considered a “top tier” company by Keane, as well as third-party analyst firms like Forrester Research, for its expertise in “service-oriented architecture” (SOA), a main component of the SEC’s XBRL project. Keane representative Danielle Wuschke told CFO.com that, “frankly, [BearingPoint’s] financial compliance issues have nothing to do with the project.” She asserted that BearingPoint is a “well-respected and trusted adviser” to the federal government, and that Keane’s decision to include BearingPoint as a partner on the SEC job was based on the firm’s IT experience, track-record with the U.S. government, and favorable third-party evaluations, and “not on financial issues.”

Steve Lunceford, BearingPoint’s spokesman, confirmed that his company has already done similar IT consulting and development work for 15 cabinet-level departments within the U.S. government. “The filing issues are not affecting our performance,” added Lunceford.

In January, when BearingPoint finally filed its 2004 Form 10-K, the company noted “a number of material weaknesses” regarding its internal controls over financial reporting. The control deficiencies caused a string of prior period restatements dating back to June 2000 to “correct accounting errors and departures from generally accepted accounting principles.” Specifically, the company says that the deficiencies are related to the “completeness, accuracy, existence, valuation, and disclosure of revenue, costs of service, accounts receivable, unbilled revenue, and deferred revenue.”

Further, filings were stalled because the company was awaiting the outcome of a court case related to BearingPoint debt covenants that the company said would affect its financial results. That decision was handed down late Tuesday.

The BearingPoint restatements were the result of an internal audit committee investigation, and eventually triggered a formal SEC investigation. BearingPoint reported last year that the SEC subpoenaed documents related to internal control deficiencies and prior period adjustments. The company says it continues to cooperate with the SEC investigation.

In general, corporate restatements lead to a series of late filings because financial results can be skewed until the underlying problems are fixed. Restatements also often lead to SEC probes. SEC officials told CFO.com that they had no comment on BearingPoint’s filing status in the midst of the restatements or on whether the commission is conducting an investigation.

In its January filing, BearingPoint disclosed that the company’s audit committee had conducted an internal investigation focused on several issues. They included the circumvention of internal controls, restatements, and problems in the company’s overseas operations. The audit committee concluded that a main factor contributing to the weaknesses in internal controls was tied to the company’s financial reporting IT system, called “OneGlobe.”

The audit committee said that BearingPoint’s financial controls were put “under increased stress as a result of the premature introduction of the OneGlobe accounting system in North America.” The committee also cited a lack of adequate pre-testing and training as the reason that employees bypassed the internal controls elements of the OneGlobe system “on numerous occasions in order to close the second quarter of 2004.”

Indeed, the audit committee noted that the overall compliance and internal control environment at BearingPoint as of December 31, 2004, “presented an unacceptable risk for the company, and that financial pressures and management instability contributed to these control deficiencies.” The committee added, however, that employees involved in the bypass did not intend to distort revenue. The audit committee added that since becoming aware of the control deficiencies, BearingPoint has instituted corrective measures designed to strengthen internal controls involving revenue recognition and other areas.

But BearingPoint’s problems didn’t stop at U.S. shores. The consultantcy’s overseas operations raised a different set of concerns about circumventing controls. The audit committee reported that financial controls were evaded by employees in the company’s Asia Pacific operation, motivated “by a desire to meet a [c]ompany objective of increased utilization for the [c]ompany’s operations in China and Japan.” The audit committee found that much of the misconduct relating to financial reporting practices in the Asia Pacific region during 2004 could be attributed to “the wholly deficient ‘tone at the top’ set by former regional manager,” that included the “padding of utilization numbers.” A change in management was made to those divisions, according to regulatory filings.

Nevertheless, the audit committee probe identified a second set of potential problems in Asia, this time exposing the company to Foreign Corrupt Practices Act (FCPA) violations through a subcontractor in China. Although the internal investigation concluded that BearingPoint didn’t engage in conduct that violated the anti-bribery provisions of the FCPA, the company’s internal controls relevant to the FCPA presented “an unacceptable level of risk of exposure for the [c]ompany.”

According to BearingPoint’s Lunceford, the SEC has not completed its investigation of the company. BearingPoint is the spinoff company created when Big Four auditor KPMG divested its consulting arm.